Backers of Tax Cuts Argue They’re The Cure for NJ’s Budget Woes

Opponents say tax-revenue shortfall is already cutting into services and programs delivered by the state

Sen. Steve Oroho (R-Sussex) talking about the need to make new tax cuts during the Senate Budget and Appropriations Committee in Trenton. Sen. Jennifer Beck (R-Monmouth) is to his right.

Lawmakers who want to get rid of New Jersey’s estate tax and make other tax cuts say they’re not scared by new forecasts that predict state tax revenue will fall about $1 billion short of original projections through the middle of next year.

Instead, they’re doubling down on their calls for change, arguing that cuts will go a long way toward fixing the state’s broader budget problems.

But tax-cut critics are pointing to a series of new spending reductions announced by Gov. Chris Christie’s administration earlier this week to bolster their position. Feeling the pain of these cuts will be hospitals, New Jersey’s business community, and others -- and critics warn even deeper spending reductions would follow any new tax cuts.

How it all shakes out over the next few weeks remains to be seen, especially since the tax-cut issue has become part of an ongoing bipartisan conversation among lawmakers about the best way to renew the state’s Transportation Trust Fund before it goes broke this summer. And it’s Christie, who has been calling for more “tax fairness” in New Jersey, who will likely have the last word.

New Jersey’s acting state Treasurer Ford Scudder announced earlier this week that the Christie administration is scaling back its revenue projections for the fiscal year that ends June 30 by $603 million. The primary reason for the downgraded revenue forecast is income-tax collections that have failed to meet the administration’s latest growth projections.

Scudder attributed the problem primarily to a poorly performing stock market, and the volatility created by the state’s heavy reliance on those at the upper-income levels. So when only a few of those taxpayers have a bad year, the state will likely have one as well.

“I will repeat this as often as I possibly can,” Scudder told members of the Senate Budget and Appropriations Committee yesterday. “Our progressive tax code makes us far too reliant upon extraordinary sources of income from our highest-income earners.”

“Not only does that reliance impair the accuracy of revenue forecasts due to the volatility it creates in tax receipts, but there is also an especially painful result on state services when inevitable but mostly unforeseeable declines in revenues occur,” Scudder said.

The solution, suggested Sen. Steven Oroho (R-Sussex), is to broaden the tax base by making the state’s policies more hospitable to those in the upper-income brackets. Oroho has been among those leading the way in calling for a phase out of New Jersey’s estate tax.

Right now, New Jersey is one of only two states to levy both an inheritance tax and an estate tax, and the estate tax threshold of $675,000 is the lowest in the nation. Those policies help to push high-income individuals out of New Jersey for more tax-friendly states, which ends up having an impact on the state budget, Oroho said.

The estate tax is levied against someone’s estate upon death if it surpasses the threshold. And the inheritance tax is typically paid after receiving an inheritance from someone who is not a direct relative. The two taxes together generate an estimated $850 million in annual revenue for the state budget.

“I think it’s important that we not lose sight that if we don’t make changes this kind of trend will continue, and it will continue to get worse,” he said.

In the Assembly, Minority Leader Jon Bramnick (R-Union) has been among those who’ve also been calling for more tax cuts. Asked in the State House yesterday if the new tax-revenue figures give him any pause, Bramnick said Oroho’s view is the right one because other states right now have far more attractive tax policies.

“You have to do what you have to do to get competitive,” Bramnick said. “We better do it quickly.”

Several Democrats, including Senate Budget and Appropriations Committee Chairman Paul Sarlo (D-Bergen) have also called for a phase out of the estate tax, raising the issue as part of a broader proposal of tax-policy changes that would also include the gas-tax hike that Democrats are seeking this year to renew the Transportation Trust Fund.

Sarlo questioned Scudder yesterday to explain what, if any, impact the new revenue figures should have on those ongoing talks about trading new tax cuts for a gas-tax increase. In addition to lowering the forecast for the current fiscal year, Christie’s administration is also scaling back its projection for the fiscal year that begins July 1 by about $400 million.

But Scudder said just as spending on infrastructure is looked at as a long-term investment in the state, tax-policy changes that attract more businesses and investment in New Jersey should also be viewed that way.

“In reaching tax fairness, you’re likewise investing in the future prosperity of New Jersey,” he said. “You’re trying to bring in more capital, more businesses, more people to remain in New Jersey so that we have a long-term, strong, and growing tax base in the state.”

“I think that you can’t look at one year in revenue declines and say because of that -- and again, just declines from projections -- I don’t think you should look at that as a reason to not be engaged in investing in making New Jersey as prosperous as possible,” Scudder said.

After the hearing ended, Sarlo largely agreed, saying he has no plans to shelve a package of tax cuts that includes phasing out the estate tax over five years.

“I didn’t hear anything that would make me have second thoughts about it,” Sarlo said.

But others have taken the opposite position in the wake of the release of the new tax-collection figures, citing a series of cuts that will have to be made in response to the reduced projections to keep spending in balance, something that’s required by the state constitution.

Christie’s administration is planning to reduce charity-care funding for hospitals by $25 million, which will trigger the loss of another $25 million in matching federal funds. The state is also planning to delay the schedule of a tax-credit program offered to businesses to encourage hiring, a change that will save $135 million. And another $20 million is being taken from the state’s Clean Energy Fund.

"Some policymakers in this state seem to have the idea that the solution to the latest revenue shortfall is to continue to offer tax breaks almost exclusively skewed towards the wealthiest New Jerseyans. This is misguided and counterproductive,” said Analilia Mejia, executive director of New Jersey Working Families.

“The reality is that deep tax cuts result in significant deterioration in key areas that make the state attractive to its residents, such as education, public safety, parks, roads, and infrastructure,” Mejia said. “The more we continue to deplete the general revenue fund the less desirable New Jersey becomes to stay in and raise a family.”

And during the Senate committee hearing, Sen. Teresa Ruiz (D-Essex) pointed to the new spending cuts while issuing a warning to her colleagues. Solving one budget problem with tax cuts could create another one if it means there’s a new budget hole in the future to deal with.

“There are many of us on this committee and others who say let’s be very careful of policy changes we make because, as we see in this year’s budget, there is a shortfall and we’re looking to pull funds from other areas to fill this budget gap,” Ruiz said.

“We have to be very responsible in our approach so that we don’t create policy change that can potentially keep people here in the state of New Jersey at the expense of a five-year trajectory of having a bigger hole in our budget,” she said.